The Central Statistical Organisation office has been working on the back-series of GDP numbers from 1993-94 to 2011-12. The numbers which have been put out on the website, I understand, are yet to be approved by the Advisory Committee on National Accounts Statistics. Once that is done, they could be treated as officially approved.
The analysis of the numbers put up (a tentative view of one expert group) indicates that the GDP at market prices and GDP at factor cost in the back-casted series is systematically lower than the Old Series from 1994-95 till 2002-03. However, it is higher from 2003-04 till 2011-12. The new series figures are already available after this period. This dichotomy could happen because of the formula used and I am sure the experts looking into the subject would scrutinise this.
What do the numbers indicate?
2003-04 witnessed the boom period for the global economy. The result was that global growth picked up. Most economies were doing well and all emerging economies started showing a high growth rate.
This period continued till 2008 when the global crisis started. For India to grow at a high rate during 2003-08 was quite obvious. The NDA Government led by Shri Atal Bihari Vajpayee went out of office in 2004 leaving behind an 8% plus growth rate. Additionally, in 2004, the Government had the benefit of a continuous incremental reforms from 1991 to 2004. The global tailwinds strongly supported growth. Since demand was high, exports were growing, and, therefore, for an emerging economy like India it was a great opportunity. There were no significant domestic reforms carried out during this period. However, when this honeymoon ended, growth started slipping down and to ensure that growth is maintained, two significant steps were taken. Firstly, fiscal discipline was compromised and the banking system was advised to go in for reckless lending notwithstanding the fact that it would eventually put the banks at a risk. And yet when the UPA moved out of power in 2014, the last three year record, even in terms of growth, was less than modest.
Macro stability during the UPA
Current Account Balance
The policies of the UPA to promote growth led to macro instability thus producing a poor quality of growth. This is evident from the following:
1999-2004 : +0.5%
2004-09 : -1.2%
2009-14 : -3.3%
2014 to now : -1.2%.
Thus it is evident from the above that Vajpayee Government went out of office leaving a positive Current Account Balance contrary to what the UPA did.
The average CPI inflation figures read as following:
Average CPI inflation (using World Bank series for consistency over time)
1999-2004 : 4.1%
2004-09 : 5.8%
2009-14 : 10.4%
2014 to now : 4.7%.
The growth of the bank credit figures rate as under:
Source – RBI
The above figures led to the year to year growth in bank credit of all scheduled banks. One of the primary functions of the banks is to support growth. They lend for industry, for new enterprises, for agriculture and keep the economic cycle going. A healthy banking system is hallmark of any fast growing economy. It would thus be seen that the lending during UPA-1 and certain period of UPA-2 was excessively high. Many of these loans have been given as a part of the reckless lending policy without assessing the bankability of the projects. Unnecessary surplus capacities were created, many of which are still lying unused. A huge burden was cast on the banks since unviable projects were not able to pay the banks back leading to very high NPAs. By a process of restructuring the NPA, the UPA tried to evergreen the loans and the real health of the banks was swept under the carpet. It is thus clear that banks became weaker and subsequent to 2012-13, their ability to lend itself declined. It is only post 2014 that the truth relating to the health of the banks has been brought out and a process of recovery by various methodologies, including IBC, has started.
The overall fiscal deficit since 1999-2000 has been the following:
(% of GDP)
Economies should not spend recklessly beyond their means. If they do that, they leave the future generation in debt. In future years instead of spending for growth, the economy would only be servicing the old debt. It would be noticed that from the period 2008 onwards, when the global boom ended, UPA seriously compromised the fiscal discipline and increased the spending much more than the revenue.
From the above it is clear that the growth during UPA-1 was during the period of the global boom. It inherited an 8% plus growing economy from the NDA. The global tailwinds supported India. Emerging markets were all growing at a higher rates and when the challenge emerged, it compromised on all macro fundamentals. It compromised on the fiscal deficit and the Current Account Deficit, it allowed inflation to spiral out of control and more so to create an illusory growth, it compromised India’s banking system through reckless lending.
The above detailed data from 1999 till today is necessary and relevant in order to cumulatively analyse the expenditure and quality of economic growth during the periods 1999-2017.
Performance of emerging markets
It is also necessary to analyse how the emerging markets have performed during this period. It is relevant because a country’s growth has to be analysed also in terms of the global situation and the global economic environment.
Average growth during 2004-08
India : 8%
China : 11.6%
Emerging markets : 7.5%
(Including India and China)
Average growth during 2009-2013
India : 7.4%
China : 9%
Emerging markets : 5.4%
Average growth during 2004-2014
India : 7.7%
China : 10.3%
Emerging markets : 6.4%
Average growth during 2014-2017
India : 7.4%
China : 6.9%
Emerging markets : 4.5%
It would thus be seen that in the global context all economies were growing during the boom years, which was not peculiar only to India. It slowed down after the boom years and thereafter. However, post 2014, when the global economy was in slowdown mode, it was India and India alone which has been the fastest growing economy in the world for the last four years and has consistently overtaken China in the growth rate.